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Analysts' Upgrades, Downgrades: Heinz

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety-first" approach to investing aims to reduce risk while seeking outperformance on a total return basis.

We upgraded HJ Heinz (HNZ) to "buy." The company makes and markets processed food products, including, of course, ketchup worldwide.

The numbers: Fiscal second-quarter revenue declined 5.6% to $2.5 billion as net income and earnings per share fell 9.8% to $175 million and 42 cents, respectively. Profitability metrics declined a bit, with the operating margin falling 83 basis points to 13% and the net margin dropping 31 basis points to 6.9%. Heinz has a weak financial position, as reflected by more than $5.1 billion of debt and just $373 million in cash. But the company has proven that it has a resilient business model.

The stock: Heinz has dropped 4% in 2009, outperforming the Dow Jones Industrial Average and underperforming the S&P 500 Index. The stock trades at a low price-to-earnings ratio of 12, offers a high 4.6% dividend yield and has a record of payout increases. Ratings

We upgraded IPC Holdings (IPCR) to "buy." The company provides property catastrophe reinsurance to personal and commercial property insurers worldwide.

The numbers: Fiscal first-quarter revenue fell 21% to $85 million as net income and earnings per share plummeted 88% to $8.3 million and 15 cents, respectively. Profitability declined significantly, with the operating margin shedding 6,655 basis points to 14% and the net margin dropping 7,098 basis points to 9.7%. However, IPC has an ideal financial position, with zero debt and $122 million of cash. Despite a difficult quarter, we believe IPC is poised for success and is currently on sale.

The stock: IPC Holdings has fallen 6% in 2009, in line with the Dow Jones Industrial Average. The stock trades at a low 2010 price-to-earnings ratio of 5.71 and pays a 3.14% dividend yield.
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